Business Model Innovation Performance: When does Adding a New Business Model Benefit an Incumbent?

Abstract

Many incumbent firms respond to the emergence of a disruptive business model by adding the business model into their existing ones. But, not all incumbents perform better after adding new business models to their existing ones; that raises the question about the conditions under which adding a new business model improves incumbent performance. We develop a theoretical framework to address that question. After identifying two types of incumbent assets, complementary and conflicting, we highlight the influence of two managerial choices—timing and organizational mode of the new business model addition—that create opportunities to translate the potential provided by incumbent assets into higher performance. The proposed discriminating alignment thesis states that incumbent performance after new business model addition improves when the incumbent firm aligns complementary assets with earlier addition of the new business model and conflicting assets with an autonomous business unit for the new business model. To test these hypotheses, we analyzed the performance change of those physical store‐based retailers that added online retailing as a new business model. The test results supported all hypotheses, and key theoretical and managerial implications are presented. Copyright © 2015 Strategic Management Society.